An economic column by Sam Rainsy
The election of Donald Trump as president of the United States in November 2024 heralds a new wave of protectionist policies that could severely affect the Chinese economy. The Trump administration plans a tough approach toward China, with measures including increased import taxes, incentives for relocating U.S. companies, and tightened restrictions on technology trade. These policies risk exacerbating the structural and cyclical difficulties that China is already facing, casting a worrying shadow over the Shanghai Stock Exchange.
Protectionism and its economic impact
With Trump returning to the White House, raising taxes on Chinese imports is expected to be among the first actions taken. During his first term, tariffs had already severely impacted Chinese exports, with the United States being one of China’s main markets. The prospect of new tariffs and trade barriers raises concerns about further loss of demand, rising production costs and reduced profit margins for Chinese exporters. This hit to exports would be particularly difficult to overcome for China’s manufacturing sector, which already faces intense global competition.
At the same time, the Trump administration should intensify its efforts to encourage the relocation of American companies. These measures risk depriving China of foreign investment and job creation, especially in key industrial regions dependent on global capital. American companies, encouraged to repatriate their activities, could weaken China’s production capacity and increase unemployment, worsening the difficulties of an economy dependent on foreign presence to fuel its growth.
The expected technological restrictions would also be a serious setback for China. Trump’s focus on limiting technology trade could once again target critical sectors like semiconductors and artificial intelligence. Chinese companies like Huawei and SMIC, already sanctioned in the past, could see their access to critical components and advanced technologies even more limited. This technological dependence represents a major vulnerability for China, slowing its pace of innovation and undermining its aspirations for self-sufficiency.
A fragile internal economic context and a precarious Shanghai stock market
These external pressures come at a time when China’s economy is already facing internal challenges. Population aging threatens the sustainability of long-term growth, with a declining workforce and increasing social costs. Furthermore, the real estate crisis has shaken the foundations of the Chinese economy: falling prices, falling demand and massive debt from developers like Evergrande are jeopardizing the country’s financial stability.
Added to these challenges is the growing control of the Chinese Communist Party over private companies. By imposing increased political control on businesses, the CCP reduces their autonomy and flexibility in an increasingly globalized market. This state intervention generates uncertainty among investors, who fear a lack of transparency and the arbitrariness of policies that could harm the growth and profitability of companies.
Financial markets tend to anticipate and amplify economic trends, especially when they signal difficulties. The Shanghai Stock Exchange, already weakened by a series of economic setbacks, could be hit hard by the Trump administration’s renewed trade and technology restrictions. With growing doubts about the competitiveness and growth prospects of Chinese companies, international investors could withdraw their capital, triggering a sharp fall in stock prices.
The Chinese government could attempt to stabilize the market through temporary measures, but these interventions are unlikely to provide lasting support. While a centralized administration can often control bureaucratic functions, financial markets are less sensitive to authoritarian directives. Sustainable investor confidence relies on deep structural reforms rather than short-term adjustments.
Gloomy outlook for the Chinese economy
In summary, the election of Donald Trump represents a significant challenge for an already struggling Chinese economy. Protectionist policies aimed at reducing Chinese exports, limiting foreign investment, and restricting access to advanced technologies create a highly uncertain economic environment. The cumulative impact of these structural difficulties, aggravated by trade tensions, should have repercussions on the Shanghai Stock Exchange, heralding a period of high volatility.
In the long term, China could be forced to fundamentally rethink its economic model to adapt to this difficult context. But the real question remains: given its intrinsic nature, can the Chinese Communist Party reform itself to become economically efficient without losing power in a necessarily transparent reform process? For now, the future looks bleak for the Chinese economy, and the Shanghai Stock Exchange could continue to bear the brunt of this uncertainty and economic tension.
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